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The Swiss franc: the seventh most traded currency in the world

18 October 2017

The Swiss franc’s performance in the global forex market has changed over time. Here’s what you need to know about the Swiss franc’s value and history.

The Swiss franc (CHF, Fr) is the official currency of Switzerland and Liechtenstein, and is used in the Italian exclave Campione d’Italia. It’s also used in the German exclave Büsingen, although the legal currency is the euro. The Swiss franc remains the only franc in Europe that’s still in circulation.

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By March 2010, the value of all Swiss coins and banknotes ever released stood at 49.6640 billion Swiss francs. It’s held as a reserve currency, which means that its held in banks around the world; The US dollar and euro have the highest reserves in the world. The Swiss franc is considered a safe haven currency because of it’s stability and reliability, and is purchased when there’s financial uncertainty.

Value and exchange rates of the Swiss franc

The Swiss franc has historically been viewed as a hard currency because of its near zero inflation coupled with a legal requirement that at least 40% of the currency be backed through gold reserves. But this link ended because of a referendum in May 2000. In March 2005, gold reserves of the Swiss National Bank (SNB) were at 1,290 tonnes, equating to around 20% of its assets. A referendum in November 2014 that tried to restore gold backing did not pass because of its lack of votes.

The US dollar traded at CHF1.5163 in January 1990. This exchange rate saw fluctuations over the next couple of decades, with the US dollar staying in between CHF1 and CHF1.5. It was only in October 2010 that the Swiss franc climbed past the US dollar, when the dollar traded at CHF0.9689.

In April 2011, the Swiss franc traded at USD1.1116, and it reached the USD1.2 mark by July 2011 to trade at USD1.2132. This was mainly because investors were looking for safety during the Greek sovereign debt crisis. The crisis did not subside in Europe, and a debt crisis in the US around the same time saw the Swiss franc trading at USD1.2810 in August 2011.

Around this time the Swiss National Bank (SNB) decided to try countering the franc’s overvaluation by giving its liquidity a boost. By this time, the demand for francs and assets denominated by the Swiss franc was strong, causing short-term dip in Swiss interest rates.

In September 2011, when the euro traded at CHF1.095, the SNB capped the franc’s appreciation by setting a minimum exchange rate of CHF1.20 to the euro. Almost immediately, the franc fell from CHF1.12 to CHF1.22. It also lost around 9% against the US dollar within a matter of minutes. This was the franc’s biggest drop against the euro ever. The value remained low for years, until April 1012 when the value of the franc briefly reached the SNB’s target rate.

In December 2014, the SNB introduced a negative interest rate on bank deposits in order to support its franc ceiling, but this hurt the markets. It abandoned the ceiling altogether in January 2015, and the value rose against the euro by as much as 30% almost immediately. By the end of the day, when the SNB announced its decision to do away with the ceiling, the franc gained more than 20% against the US dollar and the euro. The SNB also lowered interest rates, requiring investors to pay more in fees to keep their money in Swiss bank accounts.

The euro’s devaluation against the franc does not bode well with the large export industry in Switzerland, and the sudden jump resulted in some currency traders suffering major setbacks.

The table below shows how the Swiss franc has performed against some other popular currencies.

History of the Swiss franc

Before 1798, Swiss coins were being made by over 75 entities. At one point, there were more than 850 different coins with different monetary systems and denominations. In 1798, the Helvetic Republic introduced the Swiss franc, which was equal to six and three quarter grams of pure silver, or one and a half French francs. The Helvetic Republic continued issuing these coins until it was abolished in 1803.

From 1803 to 1850 more than 20 cantons, or Swiss provinces, and half-cantons issued coins, and some banks started issuing banknotes. With over 8,000 different coins and banknotes, Switzerland’s currency system was still complex.

Finally, in 1848, the Swiss Federal Constitution ruled that only the federal government could mint money in the country. The Federal Assembly passed the first Federal Coinage Act in May 1850, when it introduced the franc as the country’s currency. At that time, the Swiss franc was at par with the French franc.

Switzerland, Belgium, France and Italy formed the Latin Monetary Union in 1865. They agreed to value their currencies to a standard of 4.5 grams of silver or 0.290322 grams of gold. While this union ended in 1927, the Swiss franc maintained that standard until 1936, when it suffered its only devaluation. In 1945, Switzerland opted to join the Bretton Woods system, and the Swiss franc was then pegged to the US dollar.

Coins and banknotes of the Swiss franc

From 1798 to 1803, the Helvetic Republic issued billon coins in denominations of 1 centime, half batzen and 1 batzen, and silver coins in 10, 20 and 40 batzen. It also issued 16 and 32 gold franc coins in 1800.

In 1850, coins were introduced in the denominations of 1, 2, 5, 10 and 20 centimes and a half centimes, 1, 2 and 5 francs. The 1 and 2 centimes coins were made of bronze; the 5, 10, and 20 centimes coins were made of billon; and franc coins were made of .900 fine silver. In 1879, cupronickel replaced billon in 5 and 10 centimes, and 20 centimes started using nickel.

In 1907, the SNB took over the job of issuing banknotes from and introduced denominations of 50, 100, 500 and 1,000 francs. The 20 franc note came into effect in 1911, followed by 5 franc notes two years later. Notes currently in circulation come in denominations of 10 francs, 20 francs, 50 francs, 100 francs, 200 francs and 1,000 francs.

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